As we kick off the year, investors and market analysts are gearing up for what promises to be an eventful 2024 with both potential challenges and opportunities lying ahead. With a global economy in a state of continuous transformation, several key market trends are set to shape the investment landscape this year:
Global growth below trend: soft vs hard landing?
Growth in most countries is expected to be below trend for 2024. The debate between a soft landing – where inflation moderates towards target without damaging economic growth – versus a more severe recession will continue to dominate headlines as new data becomes available. Markets are going into 2024 with the belief of a soft landing and are priced for such an outcome. The challenges or opportunities will be created by which narrative will ultimately prove correct. Close attention should be given to the labour markets over the next few months as this is an important factor and might determine the landing path for the economy. US exceptionalism was also a clear theme for 2023 and consensus is that this will continue into the new year.
Global interest rates: cuts are coming.
As growth and inflation are expected to drift lower over the coming months, central banks can shift to reduce interest rates gradually. The debate will be however, over timing and magnitude. Volatility is usually quite high at peak interest rates, and we expect this volatility to continue. The eventual softness of growth, inflation and the labour market would provide the answers to the timing and magnitude of the cutting cycle ahead.
Nearshoring: Who benefits?
Nearshoring*, regionalisation, friend-shoring** and China +1 are all buzzwords created by the sudden supply side lockdowns from Covid-19 and the Russian/ Ukraine conflict. Some countries, like India, Mexico and Vietnam have made inroads to displace China as the dominant exporter to the world. With geopolitical tensions expected to rise over the foreseeable future, this trend should continue to expand, and other countries could become beneficiaries.
The AI boom: what’s next?
The AI boom presents an enticing opportunity for investors in the ever-evolving landscape of technology and innovation. Artificial Intelligence (AI) is not just a buzzword; it is a transformative force reshaping industries from healthcare to finance, and from manufacturing to entertainment. As AI applications continue to grow, investing in companies at the forefront of AI research, development, and implementation can provide the potential for substantial returns.
AI-driven companies offer the promise of increased efficiency, cost savings, and enhanced decision-making processes, making them attractive prospects for investors looking to benefit from this technological revolution. Moreover, AI’s adaptability across various sectors ensures that its influence is here to stay, making it a compelling long-term investment opportunity for those seeking to harness the power of innovation in the modern world. However, as the investment hype starts to settle, it’s essential for investors to conduct thorough due diligence and diversify their portfolios to manage potential risks associated with the rapidly evolving AI industry.
TINA is dead: time to review investment choices.
TINA (there is no alternative) has been a strong theme for the last decade or so as interest rates were cut to zero, or even negative. With inflation spiking and central banks hiking rates at the most aggressive pace in four decades, interest rate and credit markets have become viable alternatives to other risky assets again. Alternatives such as multi-asset income, corporate credit (investment grade and high yield), private credit and Emerging market debt should all compete in 2024 for global capital as the interest rate cutting cycle approaches in 2024.
Green Investing: ESG in the spotlight.
ESG investing has been an emerging trend, and it is set to continue, with investors placing ever more importance on sustainable investments. As the world grapples with the consequences of climate change, companies are under increased pressure to adopt greener practices. Investors will keep a watchful eye on Environmental, Social, and Governance factors and invest in companies dedicated to reducing their carbon footprint. We have seen a growing challenge to the authenticity of offerings in this space as large global players have had to balance their messaging and focus between impact and investor returns.
Geopolitics: the year of elections.
Geopolitics are always important for asset markets, but the election calendar for 2024 is exceptionally busy. 76 countries will be voting in 2024, representing more than half of the world’s population and over 65% of global GDP. This, together with 2 wars currently on the go, should create uncertainty and volatility over the next few months. The impact from these developments, on especially oil, should be monitored very closely.
In navigating these trends, the importance of due diligence cannot be overstated. Investors should conduct thorough research on companies and industries, diversify their portfolios to mitigate risks, and, above all, have a long-term perspective. Emotional decision-making can lead to buying high and selling low, which is detrimental to financial success in the stock market.
2024 promises to be a year of dynamic market trends, influenced by a shifting global landscape and rapid technological advances. Investors should stay attuned to these trends and consider investments that meet both their strategy and goals. Successful investing in the coming year will require vigilance, adaptability, and an understanding of the ever-evolving interplay between economic, technological, and social forces that will shape the market.
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Renzi Thirumalai, is the Chief Investment Officer at FNB Wealth and Investments. He writes in his personal capacity.
